Labor pushes to protect California ruling that redefines who is an employee

Seeking to protect a legal victory they believe is the most important for California workers in a generation, organized labor and its allies on Monday will launch efforts to bolster a recent state court decision on independent contractors.

Assemblywoman Lorena Gonzalez Fletcher, D-San Diego, will introduce legislation to add to state law a stricter "ABC test" for defining employees. The test, adopted unanimously by the California Supreme Court this spring, threw nearly three decades of legal precedent up in the air and generated intense pushback from the business community.

The bill would strengthen rules that make it harder for employers to classify workers as contractors and limit their rights under state labor laws. The coming battle between labor and business over the issue poses an early political challenge for incoming Gov. Gavin Newsom, who was elected with major backing from unions but has strong ties with the tech industry from his rise through San Francisco politics.

"Individuals are not able to make it on three side hustles. That shouldn't be the norm. That shouldn't be accepted," Gonzalez Fletcher said. She said the court's decision is essential for maintaining solid employment for workers in a changing economy and for combating the income inequality that has helped drive California's poverty rate to one of the highest in the nation.

"What we permit, what we don't permit, what has worked for generations and built the middle class of California, needs to be largely intact," she said.

The test stems from a 2004 lawsuit against Dynamex, a package and documents delivery company that converted all of its drivers to independent contractors after management concluded the move would save money. In April, the Supreme Court sided with the drivers, who complained that they were being asked to do essentially the same job, without the protections of the California Labor Code and wage orders.

But the court based its ruling on a new standard that had never been used before in California. It states that workers can only be classified as independent contractors if:

(A) They are "free from the control and direction" of the company that hired them while they perform their work.

(B) Their work falls "outside the usual course" of the hiring company's business.

(C) They have their own independent business or trade beyond the job for which they were hired.

Business groups immediately raised alarms and lobbied the Legislature to intervene. They estimate that nearly 2 million Californians, from truck drivers to construction workers to hairdressers, are classified as independent contractors. If more of them are declared employees, companies are facing down increased expenses for salaries, benefits and regulations, such as minimum wage and overtime.

Tech companies in particular have faced pointed questions over whether workers who provide on-demand services through their apps should be considered employees. In October, a limo company in Southern California sued Uber, relying on the ABC test to make a case of unfair competition.

Gonzalez Fletcher said there is also a public cost to consider: When workers are pushed into the uncertain employment of independent contracting, it falls to the state to take care of them when they cannot find a job, they get sick or they retire.

She said putting the Dynamex decision into law offers a quicker resolution than fighting in court for years over its implications for issues like workers compensation and unemployment insurance.

The California Chamber of Commerce, which led the lobbying effort this summer to pause the ruling while those disputes are settled, is still looking for changes. The business community is especially worried about the B factor of the test and is seeking clarity on what might be considered a company's "usual course of business." Depending on how broadly that language is interpreted, Uber's business, for example, might be considered providing rides or developing a platform for drivers.

"The court is limited in what's before them," Jennifer Barrera, the chamber's senior vice president of policy, said. "They didn't have the luxury of understanding what the implications would be for all these different industries."

Caitlin Vega, legislative director for the California Labor Federation, said her organization has been meeting in recent months with opponents of the decision, such as doctors groups and "gig economy" companies.

She said labor is open to incorporating changes in the bill that clear up the intent and the applications of the ABC test. Small businesses shouldn't worry they will be liable for a one-time contractor who comes in to perform a service, she said. There could even be industries with unique employment models that are exempted.

"We've tried to understand what the concerns were," Vega said. "Where there are high-wage workers who are not in need of this protection, we're open to hearing that argument."

But most workers who are being misclassified as independent contractors, she said, work in low-wage jobs, performing manual labor, and many of them are immigrants. She said labor groups would not compromise on the fundamental purpose of the court decision to extend employment rights to these workers who are vulnerable to exploitation.

"We're all clear this is the law," Vega said.

Folsom nail salon owner Nina Tran said she has seen a lot of that in her industry: Nail technicians are often paid on commission like an independent contractor but treated like employees who are expected to follow the rules and schedules set by their bosses.

Many of the technicians are Vietnamese immigrants, and she said language creates a barrier for workers to know their rights. That can lead to further abuses, when owners try to drive down their prices for a competitive advantage and cut costs by making technicians work extra unpaid hours or cover their own payroll taxes.

When Tran opened her nail salon, Agape, three years ago, it was important to her to use non-toxic products and to hire the technicians as employees, with hourly wages and breaks. Though she charges more for manicures and pedicures as a result, Tran said her approach has earned the loyalty of both her workers and consumers who like what the company stands for.

"Knowing that they're contributing to a business that's trying to do good for its employees and its community, they support us," said Tran, who has lobbied at the Capitol to improve nail salon conditions. "We're creating something of value."

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